The massive demand for artificial intelligence (AI) infrastructure is driving a new wave of innovation. While Nvidia (NVDA) dominates the headlines, Broadcom (AVGO) is playing an important, behind-the-scenes role in driving the AI revolution. 

Following its outstanding fiscal second-quarter results, driven by the AI surge and its VMware acquisition, Broadcom is in the spotlight. The company is establishing itself as a market leader in both advanced chip design and enterprise software. 

AVGO stock is up 8.8% year to date, while the tech-heavy Nasdaq Composite ($NASX) is up 1.4%. Let's see if AVGO stock is currently a buy.

AI Semiconductors Lead the Charge

Broadcom operates primarily in two business segments: semiconductor solutions and infrastructure software. Total revenue increased by 20% year-on-year (YoY) to $15 billion, driven by momentum in AI semiconductors and impressive progress in its infrastructure software business following the acquisition of VMware in 2023. Adjusted earnings rose by an impressive 43.6% to $1.58 per share. AI semiconductor revenue totaled $4.4 billion, up 46% year on year. 

The Semiconductor Solutions segment revenue increased 17% to $8.4 billion, owing to custom accelerators and the growing adoption of AI networking technologies. Notably, AI networking revenue increased by over 70% YoY and now accounts for 40% of AI semiconductor revenue, reflecting hyperscale cloud customers’ preference for Ethernet-based architectures. Management emphasized that Broadcom’s Tomahawk switches, Jericho routers, and network interface cards continue to play an important role in enabling these high-performance data center clusters.

Meanwhile, the VMware integration is powering growth in the Infrastructure Software segment revenue, which increased 25% to $6.6 billion in the second quarter. Management stated that more than 87% of Broadcom's top 10,000 customers have now adopted VCF, indicating a strong product-market fit for modern, containerized, AI-ready enterprise private cloud environments. This resulted in double-digit annual recurring revenue (ARR) growth for core infrastructure software.

AI is now at the heart of Broadcom’s growth engine. For the third quarter, the company expects AI semiconductor revenue of $5.1 billion, up 60% year on year, marking 10 consecutive quarters of growth. Furthermore, Broadcom is confident that this trend will continue through fiscal 2026. The company also expects software revenue to increase by 16% YoY to $6.7 billion in the third quarter. Total revenue could rise by 21% in Q3 to $15.8 billion.

Meanwhile, analysts predict that Broadcom’s revenue will rise 21.7% this year, accompanied by a 35.8% increase in earnings. Broadcom is still a reasonable buy, trading at 31 times forward 2026 earnings and poised for long-term growth through AI. The company has a strong presence in the AI revolution’s supply chain and infrastructure.

A Dividend Stock

Despite continued investments in AI, the company generates enough cash to return to shareholders. In the quarter, the company generated free cash flow of 43% of its revenue ($6.4 billion). It distributed $2.8 billion in dividends and repurchased $4.2 billion in shares during the quarter. Broadcom’s balance sheet showed a $9.5 billion cash balance at the end of the quarter. The company even repaid $1.6 billion in debt at the end of the second quarter, reducing total principal debt to $67.8 billion. These figures show disciplined capital allocation even in a high-rate environment.

Broadcom has a forward dividend yield of 0.94%, which is lower than the tech sector average of 1.37%. However, its forward payout ratio of 29% indicates that dividends are currently sustainable, with plenty of room for growth. The company has increased its dividends for the past 15 years. 

What’s Wall Street’s Take on Broadcom Stock?

Overall, AVGO stock has garnered a “Strong Buy” rating on the Street. Out of the 35 analysts in coverage, 31 rate it a “Strong Buy,” one says it is a “Moderate Buy,” and three recommend a “Hold.” 

Based on the mean target price of $287.42, the stock has potential upside of 14.3% from current levels. Plus, its high price estimate of $340 indicates the stock could gain as much as 35% in the next 12 months.

The Verdict

Broadcom’s fiscal second-quarter performance reflects its leadership in AI infrastructure semiconductors and strong enterprise software expansion through VMware. The combination of rapid growth in AI chip sales and a high-margin software subscription model is unusual. Broadcom is creating the backbone of next-generation data centers and private clouds, which are critical to the continued growth of AI, making it a compelling semiconductor stock to buy now.